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U.S. Office ViewPoint – Part 3 | Penciling it out : Where is office construction happening and why?

This third report in our multi-part series on office construction compares current construction activity with previous cycles, and explores how office usage trends help determine where development occurs.

Key Takeaways:

Rental rates are approaching replacement costs in a growing number of markets, particularly in CBDs. But new construction does not pencil out, based on rent and construction costs alone, in many markets.

This suggests that development is being driven by other factors, such as a shortage of large blocks, tenant requirements for more efficient and adaptable space, the emergence of new submarkets and local economic incentives.

As replacement costs increase at a faster pace than market rents, development activity is expected to cool.

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​Read all three parts for the 2016 U.S. Office Viewpoint series on construction costs: